The Timna Airport Project’s VAT Exemption for Foreign Companies in Israel

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Currently, an international Israeli airport named after Ilan and Asaf Ramon is being constructed several kilometers away from Eilat. The airport will be the second largest in Israel after Ben Gurion Airport.

Business transactions in Israel are subject to a 17 percent value added tax (VAT). However, if the transaction is carried out as part of the airport construction project, the company will be entitled to an exemption from VAT.

This exemption can apply to both Israeli and foreign companies, if they meet the requirements and provisions of the law governing VAT.

There is the question of whether the VAT exemption for foreign companies executing infrastructure, construction or technology assimilation projects in the vicinity of Eilat and the Timna airport is actually beneficial. The answer is complex and requires an in- depth look at each company’s activity and at the specific transaction.

In some cases, following an in-depth examination of the transaction, our tax experts may recommend that the company not take advantage of the VAT exemption offered for projects executed in the Timna and Eilat region. Receipt of such an exemption may carry with it some disadvantages, most particularly the inability to offset input VAT for expenditures related to the project or related company activity.

Companies with heavy expenditures in Israel related to subcontractors or procurement of equipment and other goods could experience significant financial hardship from the inability to offset VAT for such expenditures. One of the criteria for receiving the VAT exemption in the Eilat area in general and the Timna project in particular is that in exchange, the company will not be able to offset the VAT resulting from its expenses. As a result, it is not always worthwhile for a company to avail itself of the VAT exemption.

Therefore, we recommend seeking specific and topical tax advice prior to beginning the project and signing the agreement. The terms of the agreement, the price of the transaction, the recipient and payer’s tax liabilities, etc. should be clarified.

Angel & Angel’s tax consultants have a rich background and extensive experience in advising international companies. We urge every company planning to undertake projects in the Eilat area to seek immediate and specific advice in order attain the maximum benefits from the transaction.